Aggravated Damages in Wrongful Dismissal Claims

March 2016

Two recent B.C. court cases illustrate the type of evidence employees will need to produce to establish a claim for aggravated damages related to the termination of their employment.

In Honda Canada Inc. v. Keays, the Supreme Court of Canada affirmed the ability of employees to seek aggravated damages in addition to pay in lieu of termination notice (common law or contractual). The Court also set out a two part analysis for when aggravated damages are warranted:

Part 1: The employer must engage in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive”.

Part 2: The employee must prove the “actual damages” caused by the employer’s conduct (e.g. mental distress/psychological harm, damage to reputation, etc.).

As a result of the Honda case, many speculated that to establish a claim for aggravated damages, claimants would be required to provide a higher threshold of evidence such as expert reports or medical evidence. The following two recent B.C. cases reveal that a higher threshold is not always required and each case will be assessed on its own facts.

In George v. Cowichan Tribes, the employer dismissed the employee for cause based on inaccurate and incomplete information and it and did so without giving her a proper opportunity to respond to the allegations against her. This amounted to a breach of the duty of good faith the employer owed to the employee (Part 1 of the analysis described above).

The employee claimed she suffered mental distress as a result of the employer’s breach of good faith. There was no expert evidence called regarding the mental distress. The Court noted:

…aggravated damages may be available to compensate a dismissed employee for mental distress caused by the manner, as distinct from the fact, of dismissal. Put another way, the loss of one’s employment will almost always cause some degree of upset but aggravated damages will only be awarded where the conduct of the employer in effecting the termination is inconsistent with the employer’s duty of good faith and where the employee suffers mental distress because of that conduct.

The Court found that the employee suffered damages “over and above what would flow simply from the loss of employment. For one thing, the allegation of cause meant that she was ineligible for employment insurance benefits thus causing her additional financial harm…More importantly, given the nature of her chosen profession and the small, close community in which she lived and worked, the allegations made against her undermined her position in that community and damaged her future employment prospects” (Part 2 of the analysis).

In TeBaerts v. Penta Builders Group Inc., the employer terminated the employee, alleging just cause for various conduct including removing employer files. The Court found that the decision to terminate for just cause was disproportionate to the employee’s conduct. The employer was also faulted for not investigating certain concerns and for not considering any disciplinary measures short of termination. This was a breach of the employer’s duty of “fair dealing” (Part 1).

Regarding aggravated damages, the employee did not provide any medical evidence that the manner of the dismissal caused her psychological harm. Her evidence was that the job was her life and that she was depressed for a long time based on the employer’s callous decision to terminate her without giving her an opportunity to respond.

The Court accepted that the termination had a negative impact on the employee’s emotional well-being. However, her evidence was not sufficient to find that she suffered mental distress “markedly beyond” what she would have experienced from being terminated (Part 2). Therefore, the claim for aggravated damages was dismissed.

The most obvious feature that allows these two decisions to be reconciled is the small community and potential damage to reputation/opportunities that existed in George but were not present in TeBaerts.

Takeaways for Employers

It is imperative to conduct a thorough investigation to establish just cause and to defend against aggravated damages.

It is important to consider the impact on the employee’s reputation when alleging just cause (small community, specialized profession, etc.). The more vulnerable the employee, the more caution should be used in establishing and applying just cause.

Medical evidence, while not mandatory, will likely assist employees in establishing mental distress above the expected response from having their employment terminated. That evidence can be challenged by the employer in litigation.

While not addressed in this article, punitive damages are available where the employer’s conduct is egregious, harsh, vindictive, reprehensible and malicious, even if the employee cannot prove actual damages suffered.

Even if an employer has a contractual termination provision that limits wrongful dismissal damages, courts may award aggravated and/or punitive damages above and beyond the termination provision amount.